Tool Firms Seek U.S. Aid

By

Kris Maher

Updated March 20, 2010 12:01 a.m. ET

Cash-strapped small and midsize companies that supply critical parts to industrial giants are seeking a $30 billion U.S. loan-guarantee program and pressing General Motors Co. to speed up payments in hopes that other manufacturers will follow.

Representatives of U.S. metal-stampers and tool-and-die concerns, which make machinery and molds that create parts such as car doors and refrigerator bodies, will meet Tuesday with Commerce Department officials and
Ron Bloom,
the Obama administration's manufacturing czar. They will press for a program financed by the Troubled Asset Relief Program to ease lending guidelines that have frustrated these small companies.

ENLARGE

An employee at Overton Industries, a tooling company in Indianapolis.
Overton Industries

The companies are trying to seize on a proposal by President Barack Obama in February to use TARP funds to boost small-business lending. Many tool-and-die and machining companies have been going out of business because they must pay up front for materials but wait months to get paid by their customers. Adding to the problem, banks have tightened credit.

Roughly 15% of U.S. tooling and machining companies went out of business last year, bringing the total remaining to between 20,000 and 25,000, according to the National Tooling and Machining Association. The group says the number has declined 30% over the past decade.

Administration officials didn't have an immediate comment on the tooling makers' loan pitch.

After the meeting with White House officials, industry association leaders will take their cause to GM in a session expected before the end of March.

GM—controlled by the U.S. government since its bailout last year—is one of the tooling and machining industry's largest customers, and these suppliers hope the car maker will establish an industry benchmark. The tooling companies seek a more favorable pay schedule, getting paid a third when they win a job, a third when work is 50% complete and a third at completion.

Alan Adler, a GM spokesman, said the company is "moving in the direction" of progressive payments to tooling suppliers. "Obviously there have been a lot of suppliers impacted by the economy and our bankruptcy. A healthy supply base is critical to GM," Mr. Adler said.

Tool makers, metal-stamping companies and industrial mold makers provide essential building blocks for nearly every manufactured product, from cars to appliances to gas-drilling suppliers. Most of these companies have annual sales of $5 million to $20 million and employ 50 to 150 workers.

Since the recession began, small and mid-sized tooling and machining companies have faced a harder time getting credit. Even some with solid balance sheets and strong order backlogs have been denied routine financing to meet payroll and expand capacity. Banks focus on 2009 results, a dismal year for the industry, without weighing a company's borrowing history and booked future sales.

Moreover, tooling concerns say, customers who have cash problems of their own have delayed payments beyond 90 days. Delayed payments hamper the tooling makers' ability to obtain loans, leading to bankruptcies.

Wes Smith,
president of E&E Manufacturing Co., a metal-stamping company in Plymouth, Mich., and a board member of the Precision Metalforming Association, plans to tell the White House's Mr. Bloom that the administration's use of TARP funds for small-business lending is a good idea but doesn't go far enough. "You've got to get the banks in a condition that they can lend money," he said.

Mr. Smith and others want new guidelines for banks to make it easier for them to grant loans, arguing that capital requirements are preventing many banks from lending.

In some cases, tooling companies say banks have compounded the problem by restricting the amount of business they will do with the customers of tool makers, the big auto-parts suppliers.

"Banks are still very hesitant to loan to people doing automotive work," said Ron Overton, president of Overton Industries, a tooling company in Indianapolis.

Some companies, such Metal Processors Inc., a 54-year-old tooling company in Stevensville, Mich., were healthy before the downturn but are now struggling to survive.

Demand has picked up for the company, which makes tooling machines used by the automotive metal-casting industry. But it is still suffering a hangover from seven of its 25 customers going bankrupt in the past two years.

Now, Metal Processors says it is unable to get additional financing from local banks to buy materials for new jobs.

"We're seeing increases in orders. But my problem is I have no cash," said
Russ Reschke,
the company's president and chairman of the National Tooling and Machining Association. He said Metal Processors used to do $500,000 worth of business a month but now struggles to do $200,000 a month. He can't pay overtime or afford to hire, so he split shifts with six people divided over three shifts, two per shif. In October 2008 he had 52 employees. Now he has 15.

Slow payments also hurt. Mr. Reschke said he made a tool for a parts company to supply to GM, and it took GM 18 months to pay the parts supplier, forcing Metal Processors to wait 18 months to get paid $190,000.

Tooling-industry officials say car companies made a push about 10 years ago to squeeze costs from suppliers and stopped paying tooling companies until after work was completed.

"They pushed all their costs to the tooling suppliers that are carrying all these costs for these huge automotive companies," said Mr. Overton.

Mr. Overton and others said they believe auto companies will be forced to change their payment practices because tooling companies are in dire shape and many want to move from supplying car makers to other sectors like aerospace or energy. Car makers "are starting to realize that their supplier base is going out of business," he said.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.